📉 Position Sizing: The Math of Survival

You can have a 90% win rate and still go broke if you bet the farm on the 10% that lose. Conversely, you can have a 40% win rate and become a millionaire if your winners are big and your losers are small.

Position Sizing is the lever that controls your fate. It is the art of deciding “How much?” before you decide “Which way?”

The Golden Rule: Fixed Fractional Sizing

This is the industry standard. Rule: You risk a fixed percentage of your current account equity on each trade. Usually 1% or 2%.

Why it works:

• Winning Streak: As your account grows, 1% becomes a larger dollar amount. You compound aggressively.
• Losing Streak: As your account shrinks, 1% becomes a smaller dollar amount. You automatically “size down” to protect what’s left.

The Formula

Position Size (Lots) = (Account Balance * Risk %) / (Stop Loss Distance * Pip Value)

Example:

• Balance: $10,000
• Risk: 1% ($100)
• Stop Loss: 50 Pips
• Pip Value: $10 (Standard Lot)
• Calculation: $100 / (50 * 10) = 0.2 Lots.

Volatility-Based Sizing (The Pro Method)

Fixed pips (e.g., “Always use a 20 pip stop”) is amateur. Some days the market moves 50 pips in an hour; some days it moves 10.

Use the ATR (Average True Range):

1. Check the ATR Indicator on RelicusRoad Pro. Let’s say ATR is 30 pips.
2. Set your Stop Loss at 1.5 x ATR (45 pips).
3. Calculate your lot size based on that 45 pip stop.

Result: On volatile days, you trade smaller size with wider stops. On quiet days, you trade larger size with tighter stops. Your dollar risk ($100) remains exactly the same.

Advanced Sizing: “R” Multiples

Professional traders don’t talk in pips; they talk in “R” (Risk Units).

• 1R = Your Risk Amount (e.g., $100).
• 3R = 3x Your Risk (e.g., $300 profit).

The Strategy: Never enter a trade unless the potential reward is at least 2R. If you risk $100 to make $100, you need a 50%+ win rate just to break even (after commissions). If you risk $100 to make $200 (2R), you only need to be right 33% of the time to break even.

Common Sizing Mistakes

1. “I just trade 1 Lot”: This is gambling. 1 Lot on EURUSD is different from 1 Lot on Gold.
2. Martingale (Doubling Down): “I lost, so I’ll double my size to win it back.” This works until it doesn’t. When it fails, you blow the account.
3. Ignoring Correlation: Buying EURUSD, GBPUSD, and AUDUSD at the same time. You didn’t diversify; you just tripled your risk on the US Dollar.

Conclusion

Position sizing is boring. It’s math. It’s spreadsheets. But it is the only thing that stands between you and a blown account.

Respect the 1% rule. Let the math do the heavy lifting.

Trade safe. RelicusRoad Pro includes built-in risk tools to help you calculate this on the fly.